From Socialist Dream to Capitalist Reality
By SERGE SCHMEMANN
04/98 - NY Times
KIBBUTZ GIVAT BRENNER, Israel -- The exit for Kibbutz Givat Brenner,
the largest of Israel's proud old collective farms, is marked by a
bright sign for "House of Dreams."
House of Dreams is actually an amusement park that the 70-year-old
kibbutz now runs to augment the waning income from its orchards, plant
nurseries and aging factories. But the name also carries a poignant
echo of the dreams of the early Zionists from Russia, who landed on
the shores of the Promised Land envisioning a new Jewish nation forged
in the selflessness of collective field labor.
A few miles north in Tel Aviv, in a concrete block of offices on
what were barren sand dunes when the state of Israel was born, several
dozen men and women, all in jeans, shorts and T-shirts and well short
of 30, worked intently at their computers while sipping cappuccino
from paper cups. On a sheet of typing paper taped to the door, these
rooms are identified as the offices of Mirabilis, from the Latin for
miracle.
Seventeen months ago, Mirabilis did not exist. Today, the innovative
chat software invented by its four founders, ICQ (read "I seek you"),
is one of the hottest new instruments on the Internet, with 10 million
registrations and as many as 57,000 new users daily.
Though only a few miles lie between the "dreams" and the "miracle,"
they trace the extraordinary road Israel has traveled from the
socialist experiment of defiant European Jews to the high-tech
revolution that has turned the country into the Silicon Valley of
the Middle East, second only to the United States in start-ups.
High tech now accounts for nearly a third of all Israeli exports,
and with close to 3,000 start-ups and research-and-development projects,
the share is likely to continue growing.
By any yardstick, Israel is prosperous -- more prosperous than it
has ever been, and learning to love it. Exports have catapulted to
about $32 billion last year, most of them industrial and scientific,
from $30 million in 1948, most of them agricultural. The per-capita
gross domestic product has reached $17,000, more than Portugal or
Spain, and many times that of Israel's Arab neighbors. Some 120
Israeli companies are traded on New York exchanges, which places it
second among foreign countries only to Canada.
The wealth is tangible. Visitors are regularly struck by the
proliferation of cell phones, on which Israelis spend more time
talking than any other people. With 1.6 million in use, Israel has
one for every three people. The number of cars has almost doubled in
nine years, to 1.65 million last year from 882,000 in 1988, and big
luxury sedans are no longer exotic. People for whom traveling abroad
used to be an impossible dream now pour out of the country in droves
for vacations in Europe, South America, and Asia. Cafes, gourmet
restaurants, shopping malls, and outlets of every American chain
sprout routinely in Tel Aviv and Jerusalem.
A report recently prepared by the United States-Israel Joint
Economic Development Group, a panel of government and private experts
in both countries led by Undersecretary of State Stuart Eizenstat,
praised the Israeli government for making "tremendous strides" in
reforming its economy and declared that the country now "stands at
the cusp of developed-country status."
It is also true that Israel has not done it alone. For decades,
West Germany and now Germany have paid reparations for the Holocaust,
and, since the 1979 Camp David peace accord, the United States has
been doling out a hefty $3 billion in annual aid, $1.8 billion of it
military, making Israel by far the biggest single recipient of
American foreign aid.
The success has not come without serious glitches. Current
indicators point to an incipient recession. Unemployment in a country
that once prided itself on finding jobs for every citizen has reached
8.2 percent, most of it concentrated in angry blue-collar "development
towns." In December, rioting broke out in the Negev town of Ofakim
after unemployment there reached 14.3 percent.
Tensions with the Palestinians because of the stagnation in peace
negotiations under Prime Minister Benjamin Netanyahu have battered
tourism, and some economists fear the the problems could also start
scaring investors away.
Eizenstat, for one, warned in his report that the impasse "is a
major element in the current difficulties Israel is having,"
especially in tourism. Eventually, he said, foreign investment could
also suffer.
Another, less tangible problem is that the high-tech revolution and
the global reach it has given Israel could further distance Israel
economically from its Arab neighbors, delaying even longer the dream
of a "new Middle East" that accompanied the 1993 Oslo peace agreements.
Today, 96 percent of Israel's exports and 93 percent of its imports
have destinations outside the region.
But whatever the difficulties, and the Middle East is never without
them, the trendy upper-middle-class youths hanging out at the sushi
bars on Tel Aviv's Ha'Arbaa Street represent a remarkable evolution
from the ascetic soldier-farmers of the pioneering kibbutzim.
"I remember when Tel Aviv streets were sand," said Dan Propper,
president of the Manufacturers Association and managing director of
OSEM, a group of food manufacturing companies. "I remember convoys
of camels taking orange crates to Jaffa ports, one tied to the tail
of the other. Bedouins pastured their goats in the streets. Jackals
roamed the center of Tel Aviv."
Even five years after the founding of Israel, Avner Zaks, the
secretary of the Givat Brenner kibbutz, remembered how the veterans
-- those who had pitched the first tents and broken the first land
in 1928 -- wept when they heard of Stalin's death. That was before
the terrible human cost of his utopia was revealed, and when
collective labor was still the dominant ethic of the Jewish state.
That ethic still survives here at Givat Brenner in the communal
dining room, in the free housing, education, and medical care, and
in the pooling of all outside income.
"For many years, we thought that working hard was enough," said
Ruth Klidar, a longtime kibbutz member. "If we got up at 6 and worked
through the afternoon, that was good.
"Then we found out that much of the work made no money. Take the
dining room as an example -- it's basically a restaurant, which should
have no more than 10 employees. We have 30, so we're losing money."
The real problem is not money -- Zaks said the kibbutz takes in
about $27 million a year. But the major source of income now is the
salaries of members who work outside, and fewer and fewer young people
stay on. Zaks said that 85 percent of young people left after
completing their education, and that fewer than 100 of the 12,000
people on the kibbutz were 25 to 35. Meanwhile, about 300 of the 850
full members are over 65.
"The young don't want everything in common," said Zaks, who at 53
is the classic icon of a kibbutznik with his trim figure, tan, and
dusty sandals. "They want more control over their lives. You have
to adapt to a new system of living. We built this on the ethic of
sacrifice. But now our mission is finished."
That mission was initially to settle the biblical homeland, to
defend it and make it bloom. But the goals began to evolve even
before the founding of the Jewish state.
During World War II, Givat Brenner began supplying products for
the British army, laying the foundation for exports. The need for
irrigation equipment led to creation of a foundry. This has evolved
into a specialized aluminum die-casting company, which now produces,
among other things, the housing for emergency phones along the
New Jersey Turnpike.
With time the kibbutz added a juice factory, a furniture factory,
a large nursery, and turf production for lawns and parks, in
addition to its agricultural products.
A similar evolution was taking place in the state as a whole.
"When you're looking at the development of Israeli industry,"
Propper said, "you're really looking at the development of the
country."
"Industry was established at the beginning of the century for
agriculture," he added. "In the second stage, we supplied the
British and other armies. Then came the war of independence of
1948, and the beginning of the arms industry. Then in the early
1950s came the immigration from North Africa. The land couldn't
supply enough jobs, so factories had to be built, and the
'development towns' grew around textile plants."
After the 1967 war, France declared an embargo on weapons exports
to Israel, forcing the sophisticated-arms development that eventually
gave rise to the high-tech revolution.
The major change, said Amotz Asa-El, associate editor of the
Jerusalem Post and its former business editor, came with an abortive
attempt in 1977 to scuttle socialism. The economy was not prepared,
and it sank into hyperinflation.
"In 1985," Asa-El said, "to deal with hyperinflation, the unity
government led by Shimon Peres launched a stabilization plan that
laid the foundations for the kind of economy Israel now has. He ordered
a freeze in the humongous public sector, he emancipated the central bank,
he ordered a deep cut in the defense budget, from a sixth of the entire
budget to about 10 to 13 percent, where it now stands."
The measures had two major effects. Generally, they launched the
process of liberalization and privatization that Netanyahu has campaigned
to accelerate. Specifically, the cut in the military budget brought about
the civilian high-tech industry.
This time, Israel was ready. Since the mid-1970s, many thousands of
Israelis had lived or trained abroad. "Look at us today," said Finance
Minister Yaacov Neeman, who has led a campaign to cut the budget and
liberalize the economy. "We have a situation where the prime minister
graduated in business from MIT. The governor of the Bank of Israel,
Jacob Frankel, has a Ph.D. from Chicago University and was a long time
with the World Bank in Washington. I taught at NYU, at Cardoza Law
School, and at UCLA, and as a tax lawyer for the past 25 years have been
exposed to many American multinationals."
The Netanyahu administration has been credited with considerable
progress in liberalization, privatization, and opening markets, though
Eizenstat said in his report that Israel should further reduce the
budget deficit, government spending, and taxes.
For Israel's 50th anniversary, which by the Hebrew calendar falls
this year on April 30, Netanyahu has pledged to further ease
restrictions on the shekel, making it effectively a convertible
currency for the Israelis. For the first time Israeli citizens will be
allowed to get and use foreign currencies freely, to hold bank accounts
abroad, and to buy foreign real estate.
Two more major shifts occurred in the early 1990s: the arrival of
hundreds of thousands of immigrants from the collapsing Soviet Union,
and the breakthroughs in Israeli-Arab relations at the 1991 Madrid
Conference and the 1993 Oslo agreements.
The immigrants brought a rich array of skills, especially in the
sciences. Though negative stereotypes of Russians persist, rare is
the high-tech company without its share of Russian programmers and
technicians.
While the peace initiatives failed to generate the hoped-for trade
or partnership with the Arabs, they gave Israel a new respectability
abroad, opening new markets in Southeast Asia, the former Soviet
Union and Africa. Real exports grew by 15 percent every year, and
investments began to flood in, reaching a record $3.7 billion last
year.
Some economists warn that things may slide if the momentum in
peacemaking does not resume. Asa-El disagrees. "The Oslo process
is not undone yet," he said. "Stagnation, yes; procrastination, yes;
tension, yes; but not a reversal. Investors don't give a damn whether
there's a 'comprehensive peace.' They only want to know that people
will show up tomorrow and continue producing lucrative products."
Besides, high tech is by nature less sensitive to politics than
other industries. As Neeman noted, "If there's trouble, you pop
your diskette into your pocket and continue somewhere else."
Even more than that, the Internet liberated computer-savvy Israeli
youths from the country's biggest handicap: its isolation from markets.
"This is the modern gold rush," said Yossi Vardi, an Israeli
businessman who found the financial backing for the four young
founders of Mirabilis, one of whom is his son. "There were railroads,
radio, television. But in cyberspace, no government has to grant a
concession; you don't need a lobby. The concession is granted by
people to whom you give the best product."
ICQ has attracted enormous attention among followers of the
Internet -- Mirabilis recently held an online party for its
10 millionth registration. But because attracting followers has
so far been the company's main goal, it has yet to charge --
or make -- a shekel. The founders have no doubt that the money will
come when the time is right.
And the money can be big. Another pair of Israelis, Gil Schwed
and Shlomo Kramer, had an idea for a network fire-wall system --
programs that protect computer systems from incursions through the
Internet. They parlayed it into CheckPoint Software Technologies
Ltd., whose sales last year totaled $83 million -- up 160 percent
from the year before.
At Mirabilis, the idea was software that allows users to
communicate with others even while they are linked to other sites.
Spread only by "word of mouse," without paid publicity, Mirabilis
was an instant success in the rapidly spreading world of the Internet.
Not surprisingly, more than half of ICQ's users are under 25, while
only 2 percent are over 55.
In one of the cramped cubicles in the offices of Mirabilis, two
of the founders -- Yair Goldfinger, 26, the chief technical officer,
and Asaf Vigiser, 25, the president -- still seemed to treat their
success as something of a lark. Vigiser never finished high school.
Yet in about a year and a half, the four friends looking for a way to
harness their computer addiction have gained 65 employees and a
potential fortune.
The offices have no identifiable decor: boxes compete with
workstations for floor space, and the walls are bare aside from a
miniature basketball hoop, and posters from American television series
and movies.
"Look at us," said Goldfinger, a John Lennon look-alike in shorts
and pigtail. "We were just four Amiga and Internet freaks, and the
only way for us to make it was the Net. Here people come and go
whenever they want. Everyone loves it. It's a cult. For me it's
like a cigarette -- it's an addiction."
"Why in Israel?" he added. "I guess it's in the nature of the
culture. Israelis have always been good commandos. They don't go
by the book. They lookfor the cutting edge, for a way to do it."